The Collins Corporation purchased office equipment at the beginning of 2022 and capitalized a cost of $2,092,000. This cost included the following expenditures: Purchase price $ 1,900,000 Freight charges Installation charges 36,000 26,000 130,000 $ 2,092,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2022 and 2023. Annual maintenance charge Total In 2024, after the 2023 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment.
The Collins Corporation purchased office equipment at the beginning of 2022 and capitalized a cost of $2,092,000. This cost included the following expenditures: Purchase price $ 1,900,000 Freight charges Installation charges 36,000 26,000 130,000 $ 2,092,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2022 and 2023. Annual maintenance charge Total In 2024, after the 2023 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment.
Chapter1: Financial Statements And Business Decisions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:The Collins Corporation purchased office equipment at the beginning of 2022 and capitalized a cost of $2,092,000. This cost included the following expenditures:
$ 1,900,000
Purchase price
Freight charges
Installation charges
36,000
26,000
Annual maintenance charge 130,000
Total
$ 2,092,000
The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2022
and 2023.
In 2024, after the 2023 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company's controller
discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment.
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